Speaker 1: From Bahart where Innovation, money and power Collie in Silicon Valley, Nbon.
Speaker 2: This is Bloomberg Technology with Caroline Hyde and Ed Ludlow.
Speaker 3: I'm Caroline Heinder Bloomswelta Quarters in New York and I'm
Speaker 3: Ed Ludlow in San Francisco.
Speaker 4: This is Bloomberg Technology coming up.
Speaker 3: Yet more earnings courage for you. Ahead will break down
Speaker 3: all you need to know about. Cisco is the largest
Speaker 3: makro of computer networking equipment, and it is tumbling after
Speaker 3: its numbers.
Speaker 5: And we'll have more on Ali Barber's results as the
Speaker 5: e commerce giant falls after abruptly ending a planned spinoff
Speaker 5: of its cloud unit.
Speaker 4: Details ahead class Apex.
Speaker 3: It continues in San Francisco, tex CEO's They Dying with
Speaker 3: China's President will bring you the takeaways from the executive's dinner,
Speaker 3: but first let's check in on these markets. The takeaways
Speaker 3: are what a little bit of moon music shifting In
Speaker 3: terms of the rampant rally, we've seen NASAC off by
Speaker 3: some three tenths of percent on the day.
Speaker 6: We actually had some pretty well.
Speaker 3: Depressing, shall we say, macro economic data. But is that
Speaker 3: good news in terms of whether the federal Reserve will
Speaker 3: go in terms of interest rates, many feeling that the
Speaker 3: jobless claims on the rise, Many feeling that the factory
Speaker 3: output on the downward.
Speaker 4: Well, all of.
Speaker 3: That speaks to the fact that the federal Reserve cannot
Speaker 3: hike yet again, and indeed, maybe we'll see cuts in
Speaker 3: the second half of next year. We therefore see a
Speaker 3: bid coming into the bond market. We're off by some
Speaker 3: six basis points. Looking at Brent crude really down four
Speaker 3: point five percent, let's call it this. As we see
Speaker 3: the inventories build up. That's more of a signal of
Speaker 3: maybe cooling demand. What does that mean about global economic growth?
Speaker 3: Have a look at what's happening in terms of our
Speaker 3: risk asset of choice. I'm looking at bitcoin and still
Speaker 3: we trade within this general thirty six thousand dollars level,
Speaker 3: but we're off by some three percent on the day.
Speaker 6: And what if you've gone in terms of the micro.
Speaker 5: Well, in the context of China, it's both the micro
Speaker 5: and the macro.
Speaker 4: This is shares that Ali Barber.
Speaker 5: The news is that they have decided not to spin
Speaker 5: off their cloud unit. Commentary is that they have been
Speaker 5: impacted by US technology ker export curbs. We're going to
Speaker 5: dig into that later in the program with our reporters
Speaker 5: on both the.
Speaker 4: Macro and micro China.
Speaker 5: For the ADRs of Ali Baba, the US listed shares
Speaker 5: on track for their biggest drop in more than a year.
Speaker 5: We'll get very specific in that later in the show.
Speaker 5: Here in the US, Cisco, that is the name that
Speaker 5: we are looking at. They gave this forecast for the
Speaker 5: fiscal second quarter ending in January that was well below
Speaker 5: street expectations. What Cisco said was, this is not macroeconomic
Speaker 5: pressures or headwinds. They have big enterprise customers working through
Speaker 5: backlogs and networking equipment and that's why they're not ordering.
Speaker 5: But those orders should re accelerate. Do we buy what
Speaker 5: Chuck Robbins is saying?
Speaker 7: Joining us now?
Speaker 5: Pyper Sandler's senior research analyst, Jim Fish neutral rating on
Speaker 5: Cisco fifty dollars price target. I was reading your note and,
Speaker 5: as far as I can tell you, one of the
Speaker 5: few that basically is calling a downturn in this networking
Speaker 5: equipment market.
Speaker 4: What was your takeaway?
Speaker 8: Yeah, Caroline, ed great to chat with you again. It
Speaker 8: feels like it's been only about a month since we
Speaker 8: caught up on Cisco given the splug field. But look,
Speaker 8: I think there's we agreed and we don't agree at
Speaker 8: the same time with what Cisco's saying. Now our checks
Speaker 8: heading into this print and even some of its peers
Speaker 8: on Calendar like Arista and Juniper and F five and
Speaker 8: sort of the networking space overall, we started to see
Speaker 8: a downtick and sort of.
Speaker 9: What enterprises we're looking to order.
Speaker 8: And really the key theme I think for us heading
Speaker 8: into all these prints, including last night, was digestion.
Speaker 9: That's the best word you can use.
Speaker 8: You've had orders from twenty twenty one and twenty twenty
Speaker 8: two pushed into calendar twenty three, and you're just seeing
Speaker 8: that digestion of orders. And meanwhile, when budgets start to
Speaker 8: get tighter, networking tends to be the first thing that
Speaker 8: you try to run, hotter and squeeze as you can
Speaker 8: get away.
Speaker 9: With it for some time. So we're a little bit
Speaker 9: skeptical that we could see.
Speaker 8: At an acceleration again in product orders in their fiscal
Speaker 8: second half, especially when you start to think about budgets
Speaker 8: getting set for calendar twenty four roughly.
Speaker 9: About now with a lot of CIOs and heads of it.
Speaker 3: Jane you mentioned that the last time we were on
Speaker 3: we're talking about the Spunk deal. Does that, therefore thesis
Speaker 3: still make sense, the diversification not just hardware networking gear,
Speaker 3: but getting into the software, getting into sort of longer
Speaker 3: term payments from clients.
Speaker 9: Absolutely, Caroline.
Speaker 8: It's a great part of really why they need systems.
Speaker 8: I'm sorry, why why Cisco needs Splunk. And overall it
Speaker 8: will help with that recurring revenue piece. It'll remove the
Speaker 8: lumpiness of Cisco's current business. But at the end of
Speaker 8: the day, even with Splunk, you're still going to have
Speaker 8: the cyclicality that Cisco has to deal with, given that
Speaker 8: networking piece the biggest part of its business at this point.
Speaker 6: Talk op AI a little bit.
Speaker 3: I mean, they did seem to be saying that the
Speaker 3: appetite is there. They're building what a billion dollars of
Speaker 3: orders that they see in their line of sight. Is
Speaker 3: that enough to offset what we see is basically managed
Speaker 3: decline or managed digestion as you say, for the next
Speaker 3: few quarters.
Speaker 8: Yeah, I mean, it's a nice narrative to have, But
Speaker 8: we did this kind of back to basics piece around networking,
Speaker 8: specifically switching and routing not too long ago.
Speaker 9: And you dive deep into.
Speaker 8: You know where could AI spending on switches be, essentially
Speaker 8: and you see estimates out there calling for about ten
Speaker 8: billion ish and even Chuck mentioned that last night, with
Speaker 8: seventy five percent of it expected to be on Ethernet
Speaker 8: as opposed to Navidio's Infinite Band being the.
Speaker 9: Other roughly twenty five percent.
Speaker 8: But even when you talk about, say ten percent of
Speaker 8: Cisco's switching business a few years from now being AI driven,
Speaker 8: that's a small part of Cisco's networking business. When you're
Speaker 8: talking about a thirty billion dollar plus networking business on
Speaker 8: its own.
Speaker 5: You're talking about wide and wireless whatever, connects, devices, news
Speaker 5: data from a to be. But what jumped at me
Speaker 5: about your note versus others is the end customer we're
Speaker 5: talking about in Cisco's argument, big enterprise customers, right, not SMEs.
Speaker 5: And I kind of think of it like the pandemic.
Speaker 5: Right coming out of the pandemic, we all had an
Speaker 5: excess of hand sanitizer and toilet paper. Bear with me,
Speaker 5: but it seems like a lot of these big enterprise
Speaker 5: companies they just have an excess of the networking and
Speaker 5: routing gear. Do you see that as evidence that that
Speaker 5: Chuck Robbins presented.
Speaker 8: Yeah, no, that's definitely showing up in our customer conversations,
Speaker 8: and as Chuck also pointed out, it's also showing up
Speaker 8: with some of the largest channel partners in those conversations
Speaker 8: as well. So, look, you just have a glut of
Speaker 8: equipment sitting there that needs to be deployed, and I
Speaker 8: don't disagree it's going to take at least a couple
Speaker 8: of quarters. And it's more of the concern for US
Speaker 8: is does this start to stem into the SMB commercial
Speaker 8: base as well, where that can be actually more macro
Speaker 8: sensitive as you think about moving ahead, And it doesn't
Speaker 8: really leave a whole lot of wiggle rooms still when
Speaker 8: you think about roughly thirty percent of their businesses that
Speaker 8: commercial line, and we've already seen struggles on the carrier
Speaker 8: side that started popping up earlier this year.
Speaker 9: Cloud.
Speaker 8: It depends a bit on your exposure to which hyperscaler,
Speaker 8: let's say, but overall, enterprise was essentially that last leg
Speaker 8: of the stool that was holding most of the space
Speaker 8: up and it just now you're starting to see that
Speaker 8: down cycle of networking really come about here. And specifically
Speaker 8: add to your comment, on wireless land. Keep in mind,
Speaker 8: this has been wireless land's been one of the strongest
Speaker 8: part of networking over the last year plus. And what
Speaker 8: we're seeing is it's actually twofold one. You've gotten a
Speaker 8: lot of those access point up it's already and so
Speaker 8: Cisco Morocki for example, has really benefited been growing double
Speaker 8: digits for quite a while here. But secondly, when you
Speaker 8: look at why they needed to upgrade those access points,
Speaker 8: it's because of exactly what I'm sitting on right now
Speaker 8: with Zoom or in other cases Microsoft teams, where that
Speaker 8: sucks up so much bandwidth at all these campuses and
Speaker 8: branches that you needed to upgrade those access points. And
Speaker 8: so now you've kind of gone through that, and those
Speaker 8: applications themselves are trying to reduce down their bandwidth by
Speaker 8: over twenty percent in the latest version, so you just
Speaker 8: haven't slow down in that space.
Speaker 5: In particular, it's why I ask if attentions turned to SMBs,
Speaker 5: because loads of folks use SMBs as their kind of
Speaker 5: lead indicator for the health of an economy in this
Speaker 5: In this context, Jim Fish, Phypisandler seeing a research and
Speaker 5: this greates catch up.
Speaker 4: Rocks by US sanctions.
Speaker 5: Huawei unveiled a new smartphone in August with five G
Speaker 5: capabilities and a cutting edge process or. A teardown of
Speaker 5: the May sixty pro revealed the chip powering the device
Speaker 5: was produced by China's Smick. This raised questions about smick
Speaker 5: we s miic's capabilities and the effectiveness of US LED controls.
Speaker 7: Check this out.
Speaker 10: This at first glance is just a smartphone, but once
Speaker 10: you know what's inside, it becomes clear it's so much
Speaker 10: more than that.
Speaker 11: So what really changed everybody's view of this device was
Speaker 11: what was at the heart of it, the microprocessor that
Speaker 11: was designed and manufactured in China.
Speaker 10: It's at the center of tensions between the world's two
Speaker 10: biggest economies. The phone made by Chinese tech giant Huawei
Speaker 10: represents a breakthrough by Beijing as it tries to escape
Speaker 10: Washington's controls on its access to technology and establish a
Speaker 10: self sufficient chip industry. If those US controls had been successful,
Speaker 10: then a smartphone as advances this simply should not be
Speaker 10: possible without important key components.
Speaker 12: China now is more capable than ever of building advanced technologies.
Speaker 10: And it worried US officials, who are more concerned about
Speaker 10: advance chips going into military equipment than smartphones. It left
Speaker 10: them wondering how exactly did China do It.
Speaker 3: Can catch that full documentary on the Bloomberg and on
Speaker 3: Bloomberg dot Com tonight five pm and indeed tomorrow on YouTube. Meanwhile,
Speaker 3: let's stay with the theme of China shares of Ali
Speaker 3: Baba actually slepping pretty hard after China's largest e commerce
Speaker 3: company called off a spinoff of its giant cloud business.
Speaker 3: But I mean, in fact, the US is tightening chip cubs.
Speaker 3: Of course, all of this links, but please to welcome
Speaker 3: to the show. Henry ren over in London as well, Lee,
Speaker 3: who sat right next to me here and Henry, I
Speaker 3: start with you. It feels as though its first dividend
Speaker 3: just wasn't enough to offset the fact that now that
Speaker 3: some of the parts perhaps don't look quite so valuable.
Speaker 13: Yes, indeed, so it's a double whammy situation for alibah
Speaker 13: Bau this quarter. So its core business of selling goods
Speaker 13: to Chinese consumers is not posting the exciting revenue that
Speaker 13: we've been seeing for last quarter. But more importantly, as
Speaker 13: you line out that the company scrapped its plan to
Speaker 13: spin up its cloud unit, it's that before that it's
Speaker 13: going to relinquish its control of the cloud unit and
Speaker 13: send out the cloud unit as dividend to shareholders, but
Speaker 13: not materializing for now because the company called off the plan,
Speaker 13: although the company did issue a cash dividend, but it's
Speaker 13: seen as just a minor offset to the disappointment because
Speaker 13: investors were really expecting that the company would issue this
Speaker 13: special dividend after the spinoff, and as we know that
Speaker 13: the cloud is the second biggest segment for Ali Baba,
Speaker 13: So it's definitely a day of disappointment, a double whamy
Speaker 13: situation for Ali Baba Shaholders Today team.
Speaker 5: The timing of this is just extraordinary. We're going to
Speaker 5: go to our reporter at APEC later in the show,
Speaker 5: but you know, a centerpiece of what happened last night
Speaker 5: was President g and Biden talking about kind of closer
Speaker 5: economic cooperation while Biden saying we're going to stay competitive,
Speaker 5: is about what are we learning through these earnings out
Speaker 5: of Ali Baba about the health of the Chinese economy
Speaker 5: right now.
Speaker 14: So this definitely doesn't look good because, as Henry said,
Speaker 14: many were really banking on the breakup of the six
Speaker 14: Baby Baba's optimism, we're surrounding it. They were saying that
Speaker 14: Beijing probably has the approve, Beijing probably gave its approval
Speaker 14: signal because this wouldn't happen. That many dubbed it as
Speaker 14: the most radical change in history. And it even looks
Speaker 14: worse because they cited the US restrictions on as one
Speaker 14: of the reasons why they weren't going to continue this.
Speaker 14: And as we know, President Biden and Presidency has met
Speaker 14: their first time in a one year, and that's as
Speaker 14: relations between the two nations are there. I say, at
Speaker 14: the all time look. Oh and while there were no
Speaker 14: really big major headlines, there were small wins, but no
Speaker 14: one was really expecting a major concession. And some analysts
Speaker 14: told me that the fact that this meeting is happening
Speaker 14: is more than enough because the optics is important. But
Speaker 14: to your point, a lot of investors were really disappointed.
Speaker 14: As Henry said, it's a big disappointment for everyone. And
Speaker 14: if you look at Alibaba ADRs, they're now falling to
Speaker 14: the most in more than one year.
Speaker 3: And I think it's notable given that actually we saw
Speaker 3: JD manage to be, we saw ten Cent managed to
Speaker 3: be even with some stiff competition coming from the social
Speaker 3: apps coming in and the smaller businesses as well. Does
Speaker 3: this really reflect a consumer under pressure or.
Speaker 6: Does this also reflect competition. I think it's both, but.
Speaker 14: It's really more of the tepid demand that we're seeing.
Speaker 14: China hasn't seen the big recovery that they were poping
Speaker 14: on and that global investors are really really banking on
Speaker 14: after the COVID pandemic, and you could see that Presidencies
Speaker 14: even trying his best. He visited the Central Bank of
Speaker 14: China just a few weeks back to show that, you know,
Speaker 14: he's on top of this, but so far, and we
Speaker 14: also have foreign investments in China, but they're really all
Speaker 14: time low. So it's really kind of a complex picture.
Speaker 14: But it's really not a monolith. As you said, ten
Speaker 14: Cent is doing well, JD is doing well at least
Speaker 14: based on last month, but so far, for now, optimism
Speaker 14: is still not evident in Chinese.
Speaker 5: Investors always think about Ali Barbars like analogous with Amazon. Right,
Speaker 5: you got your e commerce component and then the news
Speaker 5: today being the cloud component, and Henry you were writing
Speaker 5: this morning's street rap. Vali Barber, what's the kind of
Speaker 5: cell side specific takeaway? From the numbers, but also the
Speaker 5: different parts of the bids.
Speaker 13: Yeah, so from the numbers perspective, the e commerce part
Speaker 13: of the business is still occupying more than fifty percent
Speaker 13: of Ali Baba's core revenue.
Speaker 7: However that part is slowing.
Speaker 13: So we saw some revival trends in the last quarter,
Speaker 13: which shows that Alibaba might be again its momentum again
Speaker 13: when its competitors like pindle Do or the price aggressor
Speaker 13: as well as live streaming e commerce platforms like going
Speaker 13: like quite a show, or like entering the space and
Speaker 13: grabbing the market share. But it's not it's not happening
Speaker 13: once again this quarter because the sales has been a
Speaker 13: bit disappointing and for analysts it's a disappointment. And on
Speaker 13: the other hand, as we said, it's now scrapping it's
Speaker 13: planned to spin off the cloud unit. It's also scrapping
Speaker 13: its plan to IPO, it's.
Speaker 7: Freshupul, which is a grocery shipping chain.
Speaker 13: It's another disappointment for analysts as FOP so a lot
Speaker 13: of things to digest.
Speaker 7: FULI Barbi inverstrously.
Speaker 5: And as we pointed out, that disappointment reflected in shares.
Speaker 5: The ADRs down nine percent biggest dropping more than a year,
Speaker 5: and the stock trading at its lowest level since May.
Speaker 5: Bloomberg's Henry Ren and Isabel Lee the dream team back together.
Speaker 4: Thank you now coming up.
Speaker 5: APEC continues here in San Francisco as China's president dines
Speaker 5: with the CEOs of some pretty major firms. We're gonna
Speaker 5: bring you all those details next. This is Bloomberg Technology. Okay,
Speaker 5: time for talking tech and first up. Shares of Hello
Speaker 5: Fresh falling today after the mailkit delivery company shocked investors
Speaker 5: by cutting its twenty twenty three e bit dar Guide
Speaker 5: and HelloFresh was down as much as a record twenty
Speaker 5: four percent eraising nearly seven hundred and eighty million dollars
Speaker 5: of market value. The changes to it outlook come just
Speaker 5: three weeks after it reaffirmed its targets, and Lenovo says
Speaker 5: it expects to see revenue growth this quarter generated from
Speaker 5: personal computer demand in China that the world's largest PC
Speaker 5: maker says it's investing a lot of money into AI
Speaker 5: optimized devices, something that CEO says could drive another round
Speaker 5: of PC replacement. Plus, semiconductor firm Sapien is unveiling its
Speaker 5: latest artificial intelligence chip for Data cent. It's the startup
Speaker 5: backs by South Korean firm sk Group is ramping up
Speaker 5: its offering to compete with.
Speaker 4: The likes of Nvidia and others.
Speaker 5: Sapient will be conducting testing for major customers before it
Speaker 5: begins mass production in the first half of next year.
Speaker 3: Carrot, Well, let's turn attention to what's happening in your
Speaker 3: city at the moment.
Speaker 1: Ed.
Speaker 3: Of course, APEC underwearing way in San Francisco, and Arey
Speaker 3: Horden has been there throughout talking to some big names
Speaker 3: and attendance, and notably there were some big executives and
Speaker 3: attendants at a dinner with Jijingping last night. It's notable
Speaker 3: we've got some reporting at the moment saying that Tesla
Speaker 3: CEO in a Musk is no longer actually going to
Speaker 3: be in today's lineup of speakers at APEX. That's largely
Speaker 3: because he endorsed an anti Semitic post on X his
Speaker 3: own social media site. We'll talk about that later about Marie.
Speaker 3: But who have we seen and why have we seen
Speaker 3: these certain executives with Shijingping.
Speaker 15: Well, I have a full list of who sat at
Speaker 15: Shijingping's table last night where you saw a number of
Speaker 15: ceo stand up and applaud him, the likes of Ray Dalio,
Speaker 15: Larry Fink, Tim Kirk, all of them. You see them
Speaker 15: on the screen there in attendance to meet with Shijingping
Speaker 15: where one Republican official, Mike Gallagher Wisconsin, who chairs the
Speaker 15: China House Select Committee, said when he was at a
Speaker 15: protest against the Chinese Communist Party this weekend, said that
Speaker 15: executives were paying as much as forty thousand dollars or
Speaker 15: a company paying as much as forty thousand dollars for
Speaker 15: their CEO to be able to go to this dinner
Speaker 15: and sit with the President of China. But I think
Speaker 15: more importantly we should also look at what the President
Speaker 15: of China said yesterday. He really struck a more conciliatory,
Speaker 15: duvish tone. Part of this was the fact that he
Speaker 15: is dealing with a fragile economy at home. We've seen
Speaker 15: a huge hit to foreign direct investment into China, and
Speaker 15: it looked like he was trying to set a path
Speaker 15: forward to be more welcoming when it comes to US
Speaker 15: businesses this summer. Gina Ramundo, the Commerce Secretary, when she
Speaker 15: was in China, said that she told Chinese leaders that
Speaker 15: what she hears time and time again from businesses, and
Speaker 15: that China is becoming more uninvestable.
Speaker 6: So Shijingping yesterday.
Speaker 15: Said that he has no plans to unseat the United States,
Speaker 15: and he'd also said that he doesn't want to see
Speaker 15: China in a hot or cold war.
Speaker 6: Now, it remains to be seen.
Speaker 15: If this is going to assuage some of these business concerns.
Speaker 5: So I imaged on the other side of the table
Speaker 5: and the negotiation, President Biden was asked a very specific
Speaker 5: question about whether he viewed Jijiping as a dictator.
Speaker 15: What was his response, Well, Biden has said it before,
Speaker 15: he said it yesterday, and he will probably say it again,
Speaker 15: especially as we get into the November twenty twenty four
Speaker 15: presidential election. He said, Shijingping is a dictator, and then
Speaker 15: he explained it's a very different system in China than
Speaker 15: the one we have here at.
Speaker 4: The United States.
Speaker 15: This comment, though, came after Biden fielded a number of
Speaker 15: questions in the press conference, and then he took some
Speaker 15: ad hoc questions as he was leaving that press conference.
Speaker 15: I think the main takeaway from the White House is
Speaker 15: Biden's k not going to back away. Have asked this again,
Speaker 15: especially as the rhetoric gets heated before November of twenty
Speaker 15: twenty four. But the main takeway from the White House
Speaker 15: is they feel that this was a way a deliverable.
Speaker 15: These two individuals met, and Biden really just wants to
Speaker 15: get the relationship in a better place where he can
Speaker 15: pick up the phone in a time of conflict.
Speaker 5: AMH, real quick? What's left to come on the agenda?
Speaker 5: While Biden's in town well waiting.
Speaker 15: To hear from Biden, he's going to be addressing apex
Speaker 15: CEO's there'll be a family photo and then this evening
Speaker 15: he's going to be looking a little bit more forward
Speaker 15: to the iPath, which is this water down trade deal,
Speaker 15: not the DPP but iPath, the Indo Pacific Economic Framework.
Speaker 15: One thing to note about this is potentially some pushback
Speaker 15: that Biden administration is going to see because the trade
Speaker 15: pillar has been ditched. It was potentially going to be
Speaker 15: announced at this forum and it's not all right.
Speaker 5: Bloomberg'sa Marie hoarding over from DC in San Francisco for apeg.
Speaker 6: Wellcome out to bloom teen onogym.
Speaker 5: I hid in New York and I'm ed Lovelow in
Speaker 5: San Francisco.
Speaker 4: Two movers.
Speaker 5: I want to check back in on one for the
Speaker 5: first time. Palo Alto Networks, a name that we've not
Speaker 5: mentioned yet. We're talking about largely software in Palo Alto
Speaker 5: Networks case, it's trying to jump on this AI bandwagon,
Speaker 5: but it missed estimates in its fiscal first quarter and
Speaker 5: lowered its full year guidance, which has hit the shares
Speaker 5: you can see down almost six percent. And revisiting Cisco right,
Speaker 5: We've covered it in debt furlier in the show, but
Speaker 5: the stock is down more than eleven percent, on track
Speaker 5: for its biggest drop in almost eighteen months. And the
Speaker 5: concern here is that its outlook for its fiscal second
Speaker 5: quarter came in well below what the street was expecting.
Speaker 5: The answer from Cisco customers are working through a backlog
Speaker 5: on networking equipment. The concern from the cell side hold on,
Speaker 5: We're worried about the health of that market and what
Speaker 5: the mecroeconomic conditions are. But two big movers, similar spaces
Speaker 5: and those having an impact on the broader market.
Speaker 4: This Thursday, carrac.
Speaker 6: Yeah, and we want to dig in on the broader market.
Speaker 3: The appetite of corporate spending, right, now, particularly when it
Speaker 3: comes to the application.
Speaker 6: Of cybersecurity, of defense, and.
Speaker 3: Indeed in a world where AI is helping and hindering.
Speaker 3: With all of that, we want to talk with Lane
Speaker 3: mess CEO at Deep Instinct, and of course you yourself
Speaker 3: were former CEO of Palo Alto Networks. We were just
Speaker 3: hearing about some of the PATS earnings that aren't living
Speaker 3: up to expectations, even though there seems to be this
Speaker 3: rampant demand for cyber protection in the here and now.
Speaker 3: What do you make of the fact that Palo Alto Networks,
Speaker 3: for example, isn't managing to lean into perhaps that growth
Speaker 3: in that particular area.
Speaker 2: Well, I can't say that they're not leaning into the growth.
Speaker 2: First of all, I have to commend Nikesh and the
Speaker 2: team there. What they've done with the company post my
Speaker 2: time there has been very good. The focus of palow
Speaker 2: out there was a platform play, and the platform play
Speaker 2: is to really give you a protection around accessing your
Speaker 2: infrastructure and the threats that might hit it.
Speaker 1: The other aspects are how do you guard the door?
Speaker 2: Platform players are going broad, they're not going deep, and
Speaker 2: that's where the AI focus needs to come in. Deep
Speaker 2: Instinct goes deep and as you can appreciate, I got
Speaker 2: off my bench to do this because the challenge of
Speaker 2: AI is really becoming paramount.
Speaker 5: One thing we've reflected on this year is that when
Speaker 5: we're talking about AI and the context of cybersecurity, it's
Speaker 5: as much a tool for the threat actors as it
Speaker 5: is for your customers. Right, people trying to ward against
Speaker 5: cyber threats. Who is making the most progress the threat
Speaker 5: actors or those trying to defend against them.
Speaker 2: Well, I think a lot of people were caught off guard.
Speaker 2: Many of the platform players have machine learning models, but
Speaker 2: to really get ahead of the threat actors, you have
Speaker 2: to have the more sophisticated technology. It's a think called
Speaker 2: deep learning, and I won't get into the specific science
Speaker 2: of it, but it acts similar to a brain in
Speaker 2: the fact that you've got to count this in fact
Speaker 2: infinity parameters that you're checking against, so you can create
Speaker 2: a predictive capability and get out ahead of the actors. Now,
Speaker 2: Deep Instinct has been developing this capability for ten years.
Speaker 1: So when AI became in vogue.
Speaker 2: In terms of the things you could do from a
Speaker 2: salesforce enhancement, customer support enhancement, a lot of the security companies,
Speaker 2: including some of the ones you noted, were still focused
Speaker 2: on broadening their coverage but not going deep into the
Speaker 2: more advanced sophisticated deep learning algorithms. That's what we do
Speaker 2: with the ninety nine percent efficacy. But the main challenge
Speaker 2: right now is protecting data. So everybody's looking to protect data,
Speaker 2: everybody's looking to attack the data. You can't fight fire
Speaker 2: unless you have fire to fight fire, and deep learning
Speaker 2: is going to be the answer that most of the
Speaker 2: security companies and platform players are going to have to
Speaker 2: focus on. That's what we focus from ground up one
Speaker 2: hundred percent.
Speaker 5: Your choice of words. That very interesting. Twenty four hours
Speaker 5: ago we had the Rubric CEO, your industry colleague on
Speaker 5: people sitting here on the show.
Speaker 7: Have a listener to what.
Speaker 16: I know people will cyber attacks have gone beyond human comprehension.
Speaker 16: You have to fight fire with fire, and as attackers
Speaker 16: are leveraging AI to generate more codes to actually attack you,
Speaker 16: you have to apply AI to understand what the heck
Speaker 16: is really going on.
Speaker 2: You guys are changing notes or the no, no, actually, Bipple,
Speaker 2: he's a very good friend. In fact, I'm an investor
Speaker 2: in Rubrics, so and they're addressing the very big challenge
Speaker 2: storage recovery, and it's something that went unnoticed for a
Speaker 2: long time. It's something we focus heavily on. There are
Speaker 2: people are focusing on the eder, the endpoint, CrowdStrike, Sentinel one.
Speaker 2: They almost accept the fact that you're going to have
Speaker 2: a breach, and then they help you clean it up.
Speaker 2: But you cannot accept the breach anymore. You have to
Speaker 2: get out ahead of it. And I and Dipple share
Speaker 2: a lot of views. But the secret is in the
Speaker 2: technology and the uniqueness of the deep learning framework work.
Speaker 3: And let's talk about therefore prevention having to take center
Speaker 3: stage rather than just be dealing with the aftermath Lane.
Speaker 3: We are at our hearts a technology show. What is
Speaker 3: it about deep learning that can go there? Unlike other
Speaker 3: applications that we're seeing from rivals or indeed AI more.
Speaker 2: Broadly, Yes, rivals and most security companies are using the
Speaker 2: AI term very loosely, and they focus on machine learning.
Speaker 2: These are models that are made by humans and trained,
Speaker 2: trained on millions of feeds. But at the end of
Speaker 2: the day, the models are only sophisticated as a people
Speaker 2: who design them. The algorithms are not sophisticated. And the
Speaker 2: best comparison is compare if you would chat GPT to
Speaker 2: text learning Deep Instinct to cybersecurity.
Speaker 1: It's that level of quantum leap.
Speaker 3: Interesting use of analogies there. We really appreciate some of
Speaker 3: the time that we've just had with you in Deep Instinct,
Speaker 3: CEO and similarly investor in all areas of cybersecurity and
Speaker 3: air applications.
Speaker 6: We thank you so much for your time.
Speaker 3: Wean while coming up, we're going to talk about more
Speaker 3: of investment, particularly in the world of AI men and adventures,
Speaker 3: raising one point three billion dollars to advance oftificial intelligence startups.
Speaker 6: On that next with partner Matt Murphy ed.
Speaker 5: What have you got, Let's go to space real quick.
Speaker 5: I'm looking at shares of Amazon modestly lower ten to
Speaker 5: one percent, But the company actually confirmed this morning that
Speaker 5: the two prototype Kuyper satellites it currently has in orbit
Speaker 5: are functioning one hundred percent is intended. That is important
Speaker 5: because they now can start a broader mass production pro
Speaker 5: program to build out the constellation literally make the satellites
Speaker 5: and then get them into orbit. Remember, this is a
Speaker 5: be competitors to SpaceX is Starlink, which we've talked about
Speaker 5: a lot on the show this week, but all going
Speaker 5: well so far. For Amazon's own satellite based internet future.
Speaker 5: This has been botechnology one point three five billion. That's
Speaker 5: how much Menlo Ventures has raised in new capital to
Speaker 5: fund promising AIS startups. This new capital will be invested
Speaker 5: by its flagship venture fund, Menlo sixteen, as well as
Speaker 5: Menlo Inflection three and affiliated funds. Melo Ventures partner Matt
Speaker 5: Murphy joins us now for more. Matt, I think you'd
Speaker 5: argue that you've got a good track record both of
Speaker 5: investing in AI and early stage right, but there's clearly
Speaker 5: some near term momentum here. Explain how quickly you raise
Speaker 5: the funds and where you raise them from.
Speaker 17: It was mainly our standard LPs been good long term
Speaker 17: partners with us. We had positive net dollar retention, which
Speaker 17: in kind of the world assassin means that you raised more,
Speaker 17: you increased your base of capital from those who were
Speaker 17: already with you.
Speaker 1: But we did add a number of additional LPs.
Speaker 17: I think the reality is that we've been through kind
Speaker 17: of a bumpy time in the venture business. But if
Speaker 17: one can promise the kind of focus around this opportunity,
Speaker 17: the ability to win be in great companies and build
Speaker 17: a portfolio around AI. It's very compelling to new investors
Speaker 17: and existing investors.
Speaker 3: What's been so interesting is instead of VC money going
Speaker 3: into a lot of these AI startups, particularly the foundational
Speaker 3: model types, we've seen money come from big tech.
Speaker 6: Ultimately, how have you discerned.
Speaker 3: What is the right sort of reward structure that you
Speaker 3: need to see from companies that are sort of wrapping
Speaker 3: around AI, perhaps not building their own models, or indeed
Speaker 3: whether it's those that are building, how do you discern
Speaker 3: what is the best VC backed company?
Speaker 17: Yeah, I mean, I think there's really two massive opportunities
Speaker 17: right now.
Speaker 1: One is kind of this generative AI stack.
Speaker 17: So in technology trends, like when a bunch of companies
Speaker 17: moved to the cloud, we had a whole rebuilding of infrastructure,
Speaker 17: and that's exactly what is going on here in AI.
Speaker 17: And then you look at the application layer and we
Speaker 17: feel like the application layer is a ten year trend.
Speaker 1: There are a bunch of companies that are i mean.
Speaker 17: The entire portfolio you mentioned a lot of big companies
Speaker 17: or at this like perfect intersection of technology readiness and
Speaker 17: kind of CEO company readiness. There's this real move to
Speaker 17: kind of adopt AI as fast as possible. We'd say
Speaker 17: that the application opportunity is really a ten year opportunity,
Speaker 17: and maybe even some of the best applications will be
Speaker 17: built in a couple few years. Is the technology matures
Speaker 17: and entrepreneurs imagination and comfort with deploying these technologies evolves.
Speaker 17: But right here now we feel like there's the biggest
Speaker 17: opportunity in picks and shovels. So it's those kind of
Speaker 17: infrastructure building blocks obviously in nvidial like anthropic and open AI.
Speaker 17: But there's a whole big middle there that has to
Speaker 17: happen well for applications to be built. So it's picking models,
Speaker 17: training models, observing models, optimizing models. There's just a whole
Speaker 17: big body of work that's coming together right now that's
Speaker 17: going to make all of this easier and accelerate the
Speaker 17: application innovation even more so.
Speaker 3: Of course, I mean Meno aventures itself one of the
Speaker 3: oldest vcs from the Bay Area. I mean, is the
Speaker 3: founder you want to backcoming from the West coast? Is
Speaker 3: it now dispersed throughout global opportunities?
Speaker 17: Now the venture business has gotten more global, but San
Speaker 17: Francisco's definitely having another renaissance.
Speaker 7: The Bay Area.
Speaker 17: We have the most AI talent, i'd say, in the world,
Speaker 17: and people are kind of flocking back to be part
Speaker 17: of a lot of these companies. So there are many
Speaker 17: pockets of venture capital these days. Obviously New York's been
Speaker 17: a big hub. Some good infrastructure opportunities and application companies
Speaker 17: there La Seattle, Austin, et cetera, Boston.
Speaker 1: But San Francisco for AI is definitely the upper center.
Speaker 5: I want to go back real quick to that that
Speaker 5: kind of ten year time horizon that you're outlining. It's
Speaker 5: kind of like bench capital one oh one. But across
Speaker 5: the startup curve, loads of folks come on this show
Speaker 5: and say the reality is ninety percent of these startups
Speaker 5: are going to fail. AI startups nine zero percent. Do
Speaker 5: you share that kind of outlook.
Speaker 17: Well, I think that the numbers are a bit better
Speaker 17: than that. I mean, I think about fifty percent of
Speaker 17: companies you know failed, don't don't don't return capital. There
Speaker 17: is a gold rush right now and rightfully because the
Speaker 17: opportunity is so big, I mean, and just to put
Speaker 17: that in perspective for you, Historically in venture if you
Speaker 17: went from zero to one the first year, one to three,
Speaker 17: three to ten to third year, that's really good by
Speaker 17: you know, classic venture standards. We're seeing companies in our
Speaker 17: own portfolio not to be named, but going from zero
Speaker 17: to twenty and zero to one hundred in one year.
Speaker 17: So rightfully, there's a gold rush around this market, and
Speaker 17: there will of course be some things that don't stand
Speaker 17: the test of time, but we're more leaning into it
Speaker 17: optimisticly that we're seeing signals that this is the fastest
Speaker 17: moving ecosystem we've ever seen.
Speaker 1: Adventure Matt.
Speaker 5: When a founder comes to you with the pitch deck
Speaker 5: and it's super shiny and exciting, how much emphasis do
Speaker 5: you put on their access to compute? You know, like
Speaker 5: capital is one thing, but their ability to actually you
Speaker 5: get the resources to build the thing that they tell
Speaker 5: you they're going to build.
Speaker 17: Yeah, I feel like that problem has been a little
Speaker 17: bit overhyped. I feel like Jensen's going to ramp up
Speaker 17: production and a number of other companies are come forward,
Speaker 17: coming forward with GPU GPU capabilities. The main issue right
Speaker 17: now is people really figuring out the way to do
Speaker 17: something innovative. I think the application layer especially, there's a
Speaker 17: lot of bolt on things, and there should be because
Speaker 17: you can take a current application, apply an LLM to
Speaker 17: it and makes the application smarter better when in the
Speaker 17: history we had this opportunity for a computer to do
Speaker 17: reasoning and writing at the level that it's doing right now.
Speaker 17: So all those things are super exciting, but there's kind
Speaker 17: of early stages for imagination of what's possible, and that's
Speaker 17: really what we're going to see involve and accelerate over
Speaker 17: the next couple of years. So I'd say as we
Speaker 17: look at entrepreneurs, it's less about can you get access
Speaker 17: to compute?
Speaker 1: I feel like that'll be solved.
Speaker 17: It's more about what are you doing that's distinctive that
Speaker 17: others can't do well?
Speaker 3: You made the right bets in the past. I think Ruber, Roku, Poshmark,
Speaker 3: to name but a few. We thank you so much,
Speaker 3: Matt Murphy for bringing on where you see the next
Speaker 3: sort of opportunities for menlo ventures.
Speaker 5: Billionaire Elon Musk endorsed an anti Semitic post on x
Speaker 5: that attacked members of the Jewish community for pushing quote
Speaker 5: hatred against white people. Also point out that we've heard
Speaker 5: in the last hour that Musk's name is no longer
Speaker 5: on the lineup as speakers at apex here in San Francisco.
Speaker 5: We do not know the reason why his name is
Speaker 5: no longer on that list of speakers, and here at
Speaker 5: Bloomberg News we will chase that throughout the day. Let's
Speaker 5: bring in Bloomberg's big tech editors, Sarah Freyer. What do
Speaker 5: we know about this post and Musk's response to it?
Speaker 12: Well, this has this post had echoes of the great
Speaker 12: replacement theory, one of the things that has motivated some
Speaker 12: of the shootings in the Jewish community of past years.
Speaker 12: And Musk responded to it saying that it was the truth.
Speaker 12: And then he built on his comments. He related them
Speaker 12: to his dissatisfaction with the d L, the Anti Defamation League,
Speaker 12: which is a group that is probably the biggest fighter
Speaker 12: of anti anti Semitism in the world, a nonprofit, and
Speaker 12: then he brought into his comments back and said, you know,
Speaker 12: I'm not just talking about the ADL, but anyone who
Speaker 12: espouses anti white rhetoric and anti Asian rhetoric. So I
Speaker 12: think we have seen a bit more from Musk his
Speaker 12: concern about anti white rhetoric. And of course this is
Speaker 12: a very charged time to be saying those sorts of things.
Speaker 12: There is ongoing violence in the world. He is running
Speaker 12: a massive communication platform. He has more than one hundred
Speaker 12: and forty million followers himself. So I do think that
Speaker 12: you know, when he does this, it is news and.
Speaker 3: Talk about of course, that this isn't the first time.
Speaker 3: It was last year the American Jewish Committee actually sort
Speaker 3: of really pushed on Musk to apologize previously for a
Speaker 3: deleted controversial tweet as they were then known post once
Speaker 3: again that made satirical comparisons at the time. And I'm
Speaker 3: interested in the fact that he in particular has been
Speaker 3: sort of blaming the ADL, the Anti Defamation League for
Speaker 3: a slump in his own advertising right.
Speaker 6: And I wonder to this end.
Speaker 3: Like what how we try and balance Mosque says is
Speaker 3: pro free speech, and actually he said at the time
Speaker 3: against Annie's anti semitism in of any kind, but yet
Speaker 3: he continues to perhaps walk a very difficult line.
Speaker 12: Yeah, I think I think when people hear the words
Speaker 12: anti semitism, they sort of cringe and say, oh, that's
Speaker 12: not that's not me. But then when you look at
Speaker 12: the actual content of his tweets and the people that
Speaker 12: he has been responding to, remember on Twitter, who you
Speaker 12: respond to actually affects the algorithm to the weight of
Speaker 12: his following where he replies to people even to say
Speaker 12: things like hm or interesting that can then amplify those voices,
Speaker 12: and we've seen him do that a number of times.
Speaker 12: I would say this most recent post is maybe the
Speaker 12: most explicit that he's been so far about his concern
Speaker 12: over anti white sentiment. But I do think that it's
Speaker 12: something that is affecting his company.
Speaker 6: Like you said, more than.
Speaker 12: Half of advertisers are off the platform. He is wholeheartedly
Speaker 12: blaming the anti deformation leaf for that. They had a
Speaker 12: bit of a patching up since then, but now it
Speaker 12: sounds like he's back to criticizing.
Speaker 6: Them so far.
Speaker 3: Thank you for breaking that particular news point down. And
Speaker 3: we want to keep on discussing the fact that ad
Speaker 3: advertising revenue has been under pressure at X more and
Speaker 3: most broadly, and let's talk about that with Rachel Timographs course,
Speaker 3: founderacy of e Commerce Enablement and analytics software provider Makemac
Speaker 3: and Rachel Ultimately, are you hearing from any of those
Speaker 3: clients and discussion that you're having that people are willing
Speaker 3: to come back to X in its current form, in
Speaker 3: the current environment in which we see it.
Speaker 12: So Ever, since Musk took ownership of Twitter last fall
Speaker 12: in twenty twenty two, at MCMAC, we've essentially seen a
Speaker 12: ninety percent decline in brand traffic. In May of twenty
Speaker 12: to twenty three, when Linda Racirino was stepping in, we
Speaker 12: actually saw some hope where brands were like, Okay, here's
Speaker 12: someone who understands brand safety, and we're going to try
Speaker 12: a few dollars, not five hundred thousand, not a million
Speaker 12: dollars in advertising buy. But I'm talking about publicly traded
Speaker 12: companies saying hey, we'll try fifty thousand dollars in Twitter
Speaker 12: ad spend and see how it works.
Speaker 7: But Musk is voltile.
Speaker 4: Yep, I'll I'm sorry to intrup. He's keep going.
Speaker 12: Musk is Boltle, and every single time he does something
Speaker 12: like this, we see a massive decline in Twitter traffic.
Speaker 12: So there is a direct correlation to his activities and
Speaker 12: brand AdSpend.
Speaker 5: Rachel, one of the things we've been been tracking on
Speaker 5: the X platform from a technol perspective is a world
Speaker 5: you know well, which is video. They put a huge
Speaker 5: emphasis on video as a strategy to bring back creators
Speaker 5: and then bring back advertisers.
Speaker 12: How do you see that going? So this is the
Speaker 12: interesting thing. When we saw brands retest the water with
Speaker 12: Twitter essentially around May and June of twenty twenty three,
Speaker 12: we actually saw strong results. So I can tell you
Speaker 12: that the investments that they have made in their ad
Speaker 12: products aren't improving the ad products, but it's not enough
Speaker 12: for these brands to want to be associated with his
Speaker 12: volatile behavior. Brand safety trumps any investments that they're making
Speaker 12: in their ad products.
Speaker 3: And to reflect on Linda Yakarino, she has really been
Speaker 3: trying to ampart the focus on brand safety. Have any
Speaker 3: of the moves they've made thus far made a mark
Speaker 3: on the clients?
Speaker 7: Unfortunately?
Speaker 12: I feel that Elon's brand is bigger than brand and
Speaker 12: anything that he does puts a heart to the advancements
Speaker 12: that they're trying to make.
Speaker 3: We want to thank you McK macfounder always so to
Speaker 3: the point and also bring us real data on all
Speaker 3: of it. Found our CEO Rachel Photographs. We thank you
Speaker 3: so much from Brooklyn. Meanwhile, that does it for this
Speaker 3: edition of Bloomberg Technology YEP.
Speaker 5: Recap the show on the podcast, and thank you again
Speaker 5: everyone that tunes into the podcast wherever you get them.
Speaker 5: Apple Spotify, iHeart, and of course we publish the podcast
Speaker 5: to all of the Bloomberg platforms. It's been a really
Speaker 5: great way to keep some of you connected with the show.
Speaker 5: From San Francisco going out in New York City four
Speaker 5: days in the week. This is Bloomberg Technology.